What is happening with the outbreak of COVID-19 is most certainly a human tragedy for those impacted by the virus. Its spread beyond China into (in particular) Iran, South Korea and Italy has also seen global investment markets tumble in dramatic fashion. As I write this, the US Dow Jones Index dived 2,000 points overnight – the largest daily points loss ever. And it isn’t just the US. Share markets around the world, including New Zealand, are a sea of red numbers today.

World stock market reactions to COVID-19 appears to assume a worst case scenario: a global pandemic, a non-seasonal virus, broad behavioural changes leading to significant reductions in demand, and a global recession which might continue for some time. I am not by any stretch of the imagination a public health expert, but from what I have read, this seems to downplay the potential – even the likelihood – of less catastrophic outcomes. For example COVID-19 not becoming a pandemic, a seasonal virus, more localised behavioural changes, a quicker recovery, and less economic disruption.

Markets are often driven by fear and greed, and can be prone to overreacting. I don’t know if this is the case with COVID-19, but it wouldn’t surprise me if it was.

People investing in shares should have a medium to long term investment horizon and my advice is to keep calm and stay invested. If you have been regularly adding to your investments (eg. buying monthly), keep doing so. You can think about this period as buying shares on sale. But don’t panic and sell, and particularly don’t try to pick the bottom to make a quick buck. History and research says you are most likely to get it wrong.

I don’t have a crystal ball, but I suspect that in the relatively near future, we will be able to look back on COVID-19 as a blip – down and then up. Until then, as an investor its time to buckle up and try to enjoy (or at least endure) the ride.

 

Dean Edwards

COVID-19: an investment perspective

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